Mobile Money – Will the card payment companies come to dominate?

As I mentioned in my previous post, Visa have indirectly come to be an important player in the mobile money market in Nigeria. In fact, the card payment companies (Visa, MasterCard et al) have been very active in this sector of late through their big name hires and acquisitions, which stands to reason –payments are their core business.

In developed markets, their moves into the mobile payments space have been defensive, in an effort to prevent newcomers from eroding their market share. They are, at least, one step ahead of their rivals with a recent survey showing that when it comes to mobile payments their brand is trusted more than entrants such as Google and Apple.

In the emerging markets it should be no surprise that the payment companies have been busy making inroads into mobile money. Even in these early days of industry fragmentation, it isn’t difficult to foresee a time when the card payments companies will come to dominate. They bring with them 50 years of experience in the payments industry, large balance sheets and deep pockets.

Whilst the card companies are defending market share in developed markets, they are expanding aggressively in emerging markets. Mobile money represents a new frontier for them. Not only is it a chance to expand into untapped markets and to establish their brand but it also gives them the opportunity to shape the payments landscape in places where there was none before.

Visa and MasterCard have taken slightly different approaches thus far. MasterCard has been busy setting up bilateral partnerships and joint ventures (JV) in different markets, such as The Philippines (Smart Hub) and Latin America (Telefónica/ Movistar). Its JV with Smart Hub will power the technical payments platform for its partnerships. It has also launched a virtual debit card linked to a mobile wallet in Kenya (Airtel). The JV with Telefónica is particularly interesting given that no one has yet made serious inroads into the Latin American market.

Visa has gone a different route in purchasing Fundamo outright. Fundamo is the market leader in mobile payment platforms by deployments and puts Visa in a very strong position. Taking Nigeria as an example, in a previous post I highlighted the candidates best placed to succeed - GTBank Mobile Money, Fortis and Monitise. Fundamo is the technical supplier to the first two and has a sizable minority stake in the third. The likelihood is that in the years to come if you have a mobile money wallet in Nigeria it will have come via Visa.

In getting involved with the platform providers, both MasterCard and Visa have strayed from their traditional business models. Platform providers generate their revenue from licence fees, either on an upfront or per-active-user basis. But one suspects that neither of these companies is in this to generate software licence fees. Could they move to a fee-per-payment model, as they operate with their credit and debit card businesses?

Currently, the most competitive mobile money schemes charge around 3% per transaction. What if, as an example, the payment companies were to take a small charge per transaction, say just 0.5%? With research companies predicting transfers in Africa alone to reach $200bn within five years, well, as you can see, the potential is enormous. This pricing model could allow the cost of the technology and implementation to be subsidised up front, making it more attractive to potential customers. This would also allow the payment companies to initially leverage off the mobile operators’ brand and build awareness in their own in those parts of the world where they haven’t yet achieved high visibility.

The potential for the card payment companies doesn’t end there. Might their involvement in mobile money be the catalyst that launches the take off of mobile international remittances? Virtual debit cards are already being issued off the back of mobile wallets. What’s to stop Visa or MasterCard issuing one with every platform implementation? The card can sit in the background only becoming active if the customer decides to use it. Then a mobile wallet to mobile wallet international remittance effectively becomes a debit card to debit card remittance and automatically falls under the jurisdiction of the financial regulator. This in turn gives regulators the reassurance they need that they are not ceding control of a financial service to the telecom operators. This has been one of the main stumbling blocks to mobile international remittances in the past and should have the money transfer organisations looking over their shoulders.

So where does that leave the other potential entrants in this market, such as the banks and technical vendors? Well it is still early days for this industry - it is still fragmented and there is no one standard operating model. The door is still open for these other players to roll out infrastructure and build up their brand in countries and regions where mobile money has yet to launch. But they need to focus on getting their business model right, act quickly and decisively, and be prepared to compete with some of the biggest players on the block.

Killian Clifford

Mobile Money Consulting